- Accelerates bioenergy growth
-
- Acquisition of a leading US renewable natural gas (RNG)
producer will accelerate growth of bp's strategic bioenergy
transition growth engine
- Operates 50 RNG and landfill gas-to-energy facilities across
US, with development pipeline supporting potential for around
five-fold increase in RNG volumes by 2030
- Doubles the EBITDA bp expects from biogas to around
$2 billion by 2030; supports increase
in bp's aim for EBITDA from transition growth businesses by 2030
from $9-10 billion to more than
$10 billion
- Adds distinctive value
-
- Builds on bp's existing biogas business – expanding in the US,
a key fast-growing geography for biogas
- Expect additional distinctive value through integration with
bp's trading capabilities and global customer relationships
- Maintains financial discipline
-
- $3.3 billion cash acquisition;
acquisition multiple of around four times1
- Remain committed to disciplined financial frame; five
priorities unchanged, including no change to dividend or buyback
guidance
- Expected to be accretive to both earnings and free cash flow
per share, post integration, and to deliver double-digit
returns
- Supports net zero ambition
-
- Biogas growth supports both customer decarbonization goals and
bp's aim to reduce carbon intensity of energy products it
sells
HOUSTON, Oct. 17,
2022 /PRNewswire/ --
In a move that will expand and accelerate the growth of its
strategic bioenergy business, bp today announced that it has agreed
to acquire Archaea Energy Inc., a leading producer of renewable
natural gas (RNG) in the US. The agreed acquisition, which is
subject to regulatory and Archaea shareholder approval, will be for
$3.3 billion in cash, as well as
around $800 million of net
debt2.
Bioenergy is one of five strategic transition growth engines
that bp intends to grow rapidly through this decade. bp expects
investment into its transition growth businesses to reach more than
40% of its total annual capital expenditure by 2025, aiming to grow
this to around 50% by 2030.
Acquiring Archaea will expand bp's presence in the US biogas
industry, enhancing its ability to support customers'
decarbonization goals and also progressing its aim to reduce the
average carbon intensity of the energy products it sells. bp aims
to reduce that carbon intensity to net zero by 2050 or
sooner3.
Bernard Looney, bp chief
executive, said:
"Archaea is a fantastic fast-growing business,
and bp will add distinctive value through our trading business and
customer reach. It will accelerate our key bioenergy
growth engine, creating a real leader in the biogas
sector, and support our net zero ambition. And, importantly,
we're doing this while remaining focused on the disciplined
execution of our financial frame. Investing with discipline into
the energy transition, creating further value through integration –
this is exactly what bp's transformation into an
integrated energy company is all about."
Archaea Energy
Based in Houston, Texas, Archaea Energy is a leading
RNG producer, operating 50 RNG and landfill gas-to-energy
facilities across the US, producing around 6,000 barrels of oil
equivalent a day (boe/d) of RNG. At closing its production would be
expected to provide an immediate 50% increase to bp's biogas supply
volumes.
Archaea has a development pipeline of more than 80 projects that
underpin the potential for around five-fold growth in RNG
production by 2030. Earlier this year, it announced a joint venture
with Republic Services, Inc. to develop 40 RNG projects across the
US, part of this pipeline. The joint venture will convert landfill
gas into pipeline-quality RNG that can be used for a variety of
applications to displace conventional natural gas.
Archaea has extensive operational expertise and experience with
an industry-leading modular and integrated approach to biogas
projects that provides short development lead-times. The business's
innovative and highly experienced management and operations team
has a proven track record and will remain with bp on
completion.
Nick Stork, CEO of Archaea
Energy, said:
"Archaea has become one of the largest and
fastest growing RNG platforms in the US and today's announcement
will further enable this business to realize its full potential. bp
is a world-class partner with an operational history in the RNG
value chain that is fully aligned with ours and our partners', and
I look forward to our hard-working team joining the bp organization
to help achieve their bioenergy goals."
Jon Vander Ark, Republic Services president and chief
executive officer, said:
"The acquisition of Archaea by bp
allows us to accelerate decarbonization through our innovative
joint venture with Archaea. With our shared focus on
sustainability, this joint venture provides additional
opportunities to work together on other decarbonization and
environmental services initiatives."
The acquisition of Archaea has a strong strategic fit with bp's
existing biogas business, enabling expansion of its position in the
US and potentially also in key geographies globally, including the
UK and Germany. Alongside growth
in bp's existing portfolio, the addition of Archaea's production
and pipeline has the potential to take bp's biogas supply volumes
to around 70,000 boe/d globally by 2030.
bp sees the opportunity to deliver additional distinctive value
through the integration of the business with bp's trading
capabilities and broad customer base - bp is a leading marketer of
natural gas in North America, with
many customers looking to decarbonize. Demand for biogas is also
diversifying with opportunities for growth into areas such as LNG,
renewable hydrogen, and power for EV charging.
Dave Lawler, chairman and
president of bp America, said:
"Our biogas team is already one of the leading suppliers of
renewable natural gas in North
America. This deal accelerates our ability to deliver
cleaner energy, generate significant earnings in a fast-growing
sector and help reduce emissions. This could help bp take a
significant stride toward our net zero ambition."
Accelerates earnings growth, while maintaining
discipline
bp has agreed to acquire Archaea
for $3.3 billion in cash, or
$26 per share, representing a 38%
premium to Archaea's 30-day volume weighted average
share price4. Together with around
$800 million net debt, the total
enterprise value is $4.1 billion.
Subject to regulatory approvals and Archaea
shareholder approval, bp is targeting acquisition completion
by the end of 2022.
Post integration, bp expects the transaction to be accretive to
both its earnings per share and free cash flow per share.
The business is expected to deliver rateable earnings growth.
From around $140 million today, bp is
targeting EBITDA5 from the
business, when integrated with bp, of more than
$500 million in 2025 and is aiming
for around $1 billion by 2027,
following completion of the development
pipeline6. This underpins an acquisition multiple
of around four times1. bp's investment is
expected to deliver double digit returns.
As a result of the agreed acquisition, bp has doubled to around
$2 billion its aim for the
contribution to EBITDA from biogas by 2030. bp now aims for more
than $10 billion EBITDA to be
generated by its transition growth businesses by
20307 - up from previous guidance of $9-10 billion.
bp remains committed to its disciplined financial frame, with
its five priorities unchanged. A resilient dividend remains bp's
first priority with guidance unchanged. bp remains focused on
maintaining a strong investment grade credit rating. bp's
medium-term8 capital expenditure guidance is
unchanged at $14-16 billion a year.
And bp's commitment to return 60% of full year surplus cash
flow9 through share buybacks in 2022, subject to
maintaining a strong investment grade credit rating, is unchanged.
In setting the buyback, bp's board will continue to take into
account the cumulative level of and outlook for surplus cash flow,
including the effect of this transaction.
Renewable natural gas
Global biogas demand is growing
rapidly. In bp's Energy Outlook 2022, biogas grows more than
25-fold from 2019 to 2050 in both the Accelerated and Net Zero
scenarios.
Biogas is generated by the decomposition of organic material at
landfill sites, anaerobic digesters and other waste facilities.
Archaea's operations process biogas - that would have been flared
or vented if it were not captured - to produce pipeline-quality RNG
or to generate power.
RNG can be used interchangeably with fossil fuel-based natural
gas – including as transport fuel, in power generation and in
heating – but, as it is derived from organic waste, its use results
in lower lifecycle greenhouse gas emissions. Projects such as
Archaea's also have the potential to be integrated with technology
such as carbon capture and storage to further reduce lifecycle
greenhouse gas emissions.
Increasing sales of RNG will support bp's net zero ambition,
specifically its aim to reduce to net zero the carbon intensity of
energy products it sells by 2050 or sooner. It has set an interim
target to reduce this carbon intensity by 5% by 2025 and aims to
reduce it by 15-20% by 2030, both against a 2019 baseline.
Contacts:
bp press office, London: bppress@bp.com, +44 (0)7831 095541
bp US media affairs: uspress@bp.com
Notes:
- Morgan Stanley & Co. LLC is acting as financial adviser to
bp and Freshfields Bruckhaus Deringer as lead legal adviser to
bp.
- Archaea Energy Inc. is one of the largest RNG producers in the
US, with an industry-leading platform and expertise in developing,
constructing, and operating RNG facilities to capture waste
emissions and convert them into low carbon fuel. Its innovative,
technology-driven approach is backed by significant gas processing
expertise, enabling Archaea to deliver RNG projects that are
expected to have higher uptime and efficiency, faster project
timelines, and lower development costs. Archaea partners with
landfill and farm owners to help them transform potential sources
of emissions into RNG, transforming their facilities into renewable
energy centres. Additional information is available
at www.archaeaenergy.com.
- Republic Services, Inc. is a leader in the environmental
services industry. Through its subsidiaries, the company provides
customers with the most complete set of products and services,
including recycling, solid waste, special waste, hazardous waste,
container rental and field services. Republic's industry-leading
commitments to advance circularity, reduce emissions and
decarbonize operations are helping deliver on its vision to partner
with customers to create a more sustainable world. Additional
information is available at RepublicServices.com.
Footnotes:
1
|
Acquisition enterprise
value around four times expected 2027 EBITDA
|
|
|
2
|
Archaea Energy net debt
sourced from 2Q 2022 10Q, adjusted for disclosed subsequent
financing activity.
|
|
|
3
|
bp's aim 3 is to reach
net zero for the carbon intensity of the energy products bp sells.
Any interim target or aim in respect of bp's aim 3 is defined in
terms of reductions in the carbon intensity of the energy products
bp sells (in grams CO2e/MJ) relative to the baseline year of 2019.
(Work is ongoing to confirm an assured baseline for this aim to
incorporate the inclusion of physically traded energy
products).
|
|
For the purposes of aim
3, an energy product is a product that is used by an ultimate end
user to satisfy an energy demand. In the case of fuels, to burn
them to release their calorific content, and in the case of
electricity to provide work or heat. A refined product such as a
lubricant base stock does not count as an energy product as it is
not used to provide energy in its use phase. Crude oil does not
count as an energy product except in the rare cases where it is
used by an end user to satisfy energy demand.
|
|
Physically traded
energy product includes trades in energy products which are
physically settled in circumstances where bp considers their
inclusion to be consistent with the intent of the aim. It therefore
excludes, for example, financial trades, and physical trades where
the purpose or effect is that the volumes traded net off against
each other.
|
|
|
4
|
Premium calculated
using Archaea Energy Inc. (NYSE: LFG) 30-day volume weighted
average share price as of 14 October 2022 (Bloomberg)
|
|
|
5
|
EBITDA: replacement
cost profit before interest and tax, excluding net adjusting items,
adding back depreciation, depletion and amortization and
exploration write-offs (net of adjusting items).
|
|
|
6
|
Projected financial
information in this release represents bp's view of the business
when integrated with bp.
|
|
|
7
|
At $60/bbl Brent (2020,
real) and bp planning assumptions.
|
|
|
8
|
2023-30.
|
|
|
9
|
Surplus cash flow
refers to the net surplus of sources of cash over uses of cash,
after reaching the $35 billion net debt target. Sources of cash
include net cash provided by operating activities, cash provided
from investing activities and cash receipts relating to
transactions involving non-controlling interests. Uses of cash
include lease liability payments, payments on perpetual hybrid
bond, dividends paid, cash capital expenditure, the cash cost of
share buybacks to offset the dilution from vesting of awards under
employee share schemes, cash payments relating to transactions
involving non-controlling interests and currency translation
differences relating to cash and cash equivalents as presented on
the condensed group cash flow statement.
|
Cautionary statement:
In order to utilize the 'safe
harbor' provisions of the United States Private Securities
Litigation Reform Act of 1995 (the 'PSLRA') and the general
doctrine of cautionary statements, bp is providing the following
cautionary statement.
This document contains certain forecasts, projections and
forward-looking statements – that is, statements related to future,
not past events and circumstances – with respect to the financial
condition, results of operations and businesses of bp and certain
of the plans and objectives of bp with respect to these items.
These statements are generally, but not always, identified by the
use of words such as 'will', 'expects', 'is expected to',
'targets', 'aims', 'should', 'may', 'objective', 'is likely to',
'intends', 'believes', 'anticipates', 'plans', 'we see' or similar
expressions. In particular, the following, among other statements,
are all forward-looking in nature: expectations in relation to
completion of the transaction described including the outcome of
third party approvals, the expected timing of completion and the
amount and timing of the consideration and how it will be funded;
plans and expectations relating to growing bp's transition growth
engines through this decade including that investment into bp's
transition growth businesses will reach more than 40% of bp's total
capital expenditure by 2025 and around 50% by 2030; plans and
expectations for bp's capital expenditure over the medium-term to
be $14-16 billion; plans and
estimates relating to the growth, development and value creation
potential of Archaea's business including expectations to grow
earnings; expectations for the completion of Archaea's projects and
development pipeline; expectations to increase production by around
five-fold by 2030; plans and expectations in relation to Archaea's
management and operations team; expectations for Archaea's business
when integrated with bp to deliver rateable earnings growth
including targeting EBITDA of more than $500
million by 2025 and aim for around $1
billion by 2027; expectations that biogas will contribute
around $2 billion of EBITDA in 2030
and bp's aim for transition growth businesses to contribute more
than $10 billion EBITDA by 2030;
expectations for the investment to deliver double digit returns and
statements regarding additional distinctive value creation; plans
and expectations relating to bp's strategy, including bp's
transformation to an integrated energy company; expectations that
the transaction will be accretive to earnings and free cash flow on
a per share basis post integration; expectations and plans
regarding Archaea's joint venture with Republic Services Inc.;
expectations that the transaction has the potential to take bp's
biogas supply volumes to around 70 thousand barrels oil equivalent
per day globally by 2030; expectations for the transaction to
advance bp's net zero ambition including bp's Aim 3 to reduce to
net zero the carbon intensity of the energy products bp sells by
2050 or sooner; statements relating to demand for renewable natural
gas including within scenarios described in the bp Energy Outlook
2022; and plans and expectations regarding bp's financial frame
including plans and expectations for future dividends, plans and
expectations regarding bp's credit rating, including in respect of
maintaining a strong investment grade credit rating, plans and
expectations for bp's annual capital expenditure, plans and
expectations for bp's cash balance point, plans and expectations
regarding the allocation of surplus cash flow and plans and
expectations regarding the amount and timing of share buybacks.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that will or may occur in the future and are outside
the control of bp. Actual results or outcomes, may differ
materially from those expressed in such statements, depending on a
variety of factors, including the risk factors discussed under
"Risk factors" in bp's Annual Report and Form 20-F 2021 as filed
with the US Securities and Exchange Commission and in any of our
more recent public reports.
Our most recent Annual Report and Form 20-F and other period
filings are available on our website at www.bp.com or can be
obtained from the SEC by calling 1-800-SEC-0330 or on its website
at www.sec.gov.
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